Effectiveness of Supply-Side Policies

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Goals

Market-Based

Interventionist

Effects

Effectiveness

Strengths (AO3)

Market-Based Supply-Side Policies:
- - No burden on the government budget: In fact, the sale of state-owned enterprises will benefit the government's balance.
  - Improved resource allocation: Because private entities are generally better at determining equilibrium, resources will be allocated more efficiently in many markets.
  - Reduce unemployment: Its labor policies may reduce unemployment as work is incentivized more.

Interventionist Supply-Side Policies:
- - They can directly support sectors deemed important for growth: It is easy to target one industry and encourage R&D there, for example.
  - Education and training is effective in growing the productive capacity of an economy over time.

Market-Based Supply-Side Policies:
- - Equity issues: Market-based policies primarily aim to make markets run more efficiently, but does not consider well-being of people. Abolishing the minimum wage might reduce costs of production, but will not make the lives of the workers any better. It will, however, benefit the owners of the firms.
  - Time lags: It takes a significant amount of time for the economy to show any real impact of these policies.
  - Vested interests: When state-owned enterprises privatize, for example, it is often bought up by private investors who want their own benefits rather than actually provide a satisfactory good/service to the people.
  - Environmental impact: Deregulation may improve the market, but the creation of negative externalities will occur. This is partly why regulations existed in the first place.
Interventionist Supply-Side Policies:
- - Costs: They will take a toll on government budgets and may increase national debt.
  - Time: It takes a lot of time to see any change. If the government invests in education, it will take at least 12 years to see any meaningful change, for example.
  - Inflation: Increased government spending may raise inflation levels in the short run as AD shifts to the right, but could decrease in the long run as the supply effects kick in.